Good morning and a warm welcome to the Butterfly Network, Inc. Fourth Quarter 2022 Earnings Call. My name is Candice, and I will be your operator for today's call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question-and-answer at the end. [Operator Instructions] I would now like to hand the conference call over to our host, Heather Getz. The floor is yours. Please go ahead.

Good morning and thank you for joining us today. Earlier this morning, Butterfly released financial results for the fourth quarter ended December 31, 2022, and provided a business update. The release and earnings presentation, which include a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures, are currently available on the Investors section of this company's Web site at ir.butterflynnetwork.com. I, Heather Getz, Executive Vice President and Chief Financial Officer of Butterfly; alongside Dr. Jonathan Rothberg, Butterfly's Founder and Interim Chief Executive Officer; and Darius Shahida, Butterfly's Chief Strategy Officer, will host this morning's call. During today's call, we will be making certain forward-looking statements. These statements may include among other things, expectations with respect to the financial results, future performance, development and commercialization of products and services, potential regulatory approvals, the size and potential growth of current or future markets for our products and services, and the impact of the macroeconomic factors on our business. These forward-looking statements are based on current information, assumptions, and expectations that are subject to change and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligation to update such statements. As a reminder, this call is being webcast live and recorded. And we will be referencing a slide presentation in conjunction with our remarks. There may be a short delay between the live telephone audio and the presentation being shown. To access the webcast, please visit the Event section in the investors section of our Web site. And replay of events will be available following the call. I would now like to turn the call over to Dr. Rothberg. Jonathan?

Thank you, Heather, and good morning. Since this is the first time many of you have heard from me as Interim CEO, I wanted to start today's call by sharing with you why I am so passionate about Butterfly, and why I believe this is our most impactful time, since I founded the company a decade ago. I've spent my career building disruptive solutions to improve the lives of those I love. I founded Butterfly with the mission to democratize healthcare by making medical imaging accessible to everyone. Currently, two-thirds of the world's population lacks access to medical imaging. The team at Butterfly is changing this. Butterfly is the only handheld whole body ultrasound scanner. Paired with leading edge AI, we empower healthcare professionals to make better clinical decisions. Butterfly's growing impact is uniquely enabled by the ease of use of our solution, which started with the invention of the world's first ultrasound-on-a-chip technology, and is now paired with powerful AI and enterprise software to make clinical [indiscernible]. Butterfly's solution to medical imaging is used by tens of thousands of practitioners across the globe to touch the lives of millions of patients. From health systems in the U.S. and Europe, to remote conflict areas and acute crises, including the recent earthquake in Turkey and Syria, practitioners are using Butterfly to transform the way they deliver care and save lives. Having started an industry by putting DNA sequencing-on-a-chip, I can confidently state that Butterfly [indiscernible] ultrasound-on-a-chip and AI will become as ubiquitous as the stethoscope and bring medical imaging to the two-thirds of the world that lack it. Butterfly has a world-class leadership team that is executing with more discipline and focus than ever. Our Board has formed a search committee, and the search is well underway for a full-time CEO. I look forward to updating you on this and other progress in the coming months. I will now turn the call over to Darius to share some of the significant we made in 2022.

Thank you for that introduction, Jonathan. In many respects, 2022 marked a seminal year in our journey with many historic firsts for both Butterfly and the broader industry. Before Butterfly, the idea that thousands of ultrasound devices would be implemented in a single health system or that thousands midwives in Sub-Saharan Africa could be trained in a matter of weeks to perform lifesaving obstetric scans was simply not possible. It is therefore no surprise that the broader industry and competitors alike are taking note of the progress Butterfly is making, and of our winning strategy. Just last month, the New Yorker published an article entitled, Could Ultrasound Replace the Stethoscope, in which the author cited how recent advances in chip-based technology and AI have finally made a powerful diagnostic tool capable of transforming healthcare globally. By investing in the ease of use of our solution, through new developments in applications in artificial intelligence, and the launch of the most comprehensive and streamlined enterprise software in ultrasound, Butterfly Blueprint, Butterfly is going where traditional point of care ultrasound cannot go, and in so doing, materially expanding the market. Whereas our initial focus several years ago was on empowering ultrasound experts and early adopters with Butterfly's whole-body scanning capabilities, our product portfolio has since evolved, and will continue to evolve to empower all clinicians, and eventually patients in the home. One of the unique advantages of a chip-based platform is that it enables us to rapidly innovate and deploy new form factors in ways and at speeds that all the traditional ultrasound technologies simply cannot. Going forward, we plan on continuing to invest in this technology advantage and build out our product portfolio in a fit-to-purpose way. We believe that this portfolio, coupled with continued investment in ease of use through AI…

Thank you, Darius. Revenue for the fourth quarter of 2022 was $19 million versus prior-year period and within our guidance communicated on the third quarter earnings call. Product revenue was $12.7 million, a decrease of 12% versus Q4 2021. This decrease was driven by lower volume in health systems and e-commerce. The lower volume in health systems was a result of the macro trends we discussed on the third quarter call, as well as some disruption due to the previously announced change in commercial leadership. While the lower e-commerce volume is consistent with our strategy of driving adoption in health systems and de-emphasizing our individual curb sales through e-commerce, partially offsetting these reductions was higher global health volume and higher average selling prices in both our U.S. and international markets. Software and Services revenue was $6.3 million in the fourth quarter, growing by almost 30% over the prior-year period. Software and services mix was 33% of revenue and increased by approximately nine percentage points versus Q4 2021. This increase was due to a higher installed base of product with the accompanying subscription software, renewals on the existing base of software users and software implementations completed during the quarter. We're encouraged by this momentum as we diversify our revenue from the aforementioned e-commerce channel to providing software and services to health systems that enable more informed clinical decisions. Turning now to adjusted gross profit, adjusted gross profit was $10.3 million in Q4 2022 compared to $7.5 million in the prior-year period. Adjusted gross profit was 54% for the fourth quarter, which compares to 40% in Q4 2021. This increase was primarily due to product mix reflecting a higher proportion of subscription revenues in addition to a higher average selling price also contributing to the increased margin with higher manufacturing productivity, partially…

Thank you, Heather. 2022 was yet another year on our journey, one with significant progress and challenges, but one in which we could not be prouder of the progress our team has made. As Heather and I have shared, our team has significantly reduced our operating expenses, prioritized our core competencies of innovation and customer satisfaction, and is doubling down on the ease of use of our overall solution across an expanded product portfolio. Ultimately, we are operating a better, more disciplined, and more disruptive company than ever before. As we look forward to 2023 and beyond, it is no longer a question as to whether or not chip-based ultrasound will fork our industry. We believe Butterfly is the undisputed leader in ultrasound on a chip. The real question is how quickly we can partner with scale providers and individual practitioners to elevate patient outcomes, reduce costs, and enhance provider productivity. Our entire organization is passionate, focused, and charging ahead with that in mind. Thank you. And we will now turn it over to the operator for questions.

Thank you. [Operator Instructions] So, our first question comes from the line of Josh Jennings of Cowen. Your line is now open. Please go ahead.

Hi, good morning. Thanks for taking the questions, and appreciate the update on the guidance ranges.

Good morning, Josh.

Good morning. I wanted to ask first about just Blueprint customer accounts. And you had numerous wins throughout 2022. And wanted to just better understand the pathway for the Butterfly iQ device deployments in those accounts for hospital systems that have bought Blueprint as a standalone. Seems like there's a major foot in the door at major hospital and hospital systems' IDNs, and how do you capitalize once a customer is established? And just maybe any precedent cases where you've seen deployments of Butterfly iQ go department after department as you penetrate that customer account?

Hi, Josh. This is Darius. Thanks for your question, I'm happy to answer it. So, first of all, for those who are not aware, obviously Blueprint is an incredible and comprehensive enterprise software which we like to think of as the operating system for all ultrasound imaging. And as I mentioned earlier on the call, we had almost a dozen new Blueprint accounts added in Q4 of 2022. A number of those were deploying the software only, with no probes. And to your earlier question, the ability to deploy Blueprint really is a Trojan horse for us which allows us to enter these large health systems, ingest all of the ultrasound images from across a pretty comprehensive suite of devices, and then ultimately to deploy our own probes. And so, what we've seen is that Blueprint really is a Trojan horse for us. Once we deploy that enterprise software it becomes very easy for account to then purchase Butterfly devices, deploy those devices, and actually have a really premium experience with those Butterfly devices versus the other historic devices they might already have on that enterprise software.

Thanks for that. And just to follow up on, I guess, your current customer base, like Rochester or Medical College of South Carolina. Just thinking about the cadence of revenue as that partnership evolves, in order to understand, I guess, wanted to confirm is that there are revenue opportunities in each customer account each year to build one to increasing deployment to providers in different departments, et cetera, but just wanted to clarify that?

Yes, I mean that's absolutely the case, Josh. With Rochester and other large enterprise health systems, the goal is obviously to transform the way they deliver care across the entire system. What we tend to do is we enter with a specific department, and then as we prove how Butterfly can transform and improve care in that department, we spread within the health system. And we've had great success at Rochester and other systems in already proving that. And as I mentioned, even with the prior question you asked around the enterprise software, we now have multiple ways to enter a health system, whether it's software first or hardware and software first, that ultimately lead to much greater scale deployments and stickers revenue.

Excellent. And wanted to follow up with just the current status of the U.S. sales force and particularly just in the enterprise channel leadership, and just the structure there, where you stand today in the beginning of 2023, especially considering some of the cost reduction initiatives that your team has deployed?

Sure, I can take that again. And then Heather, if I miss anything, please feel free to jump in. So, as Heather mentioned, we did bring on new commercial leadership, specifically Mike DelVacchio and Niki Montgomery. Both of them bring a tremendous amount of commercial expertise in scaling medical devices. And under their leadership, we've brought in a new and invigorated team to really hone in on our strategy of prioritizing these U.S. health system while simultaneously finding scaled distribution partners to help us in out-of-hospital settings. So, we're very excited and optimistic about the new commercial leadership, and I think the progress will speak to that.

Excellent. And just the last question, sorry for so many. But wanted to ask just about the pipeline, and I think you made some comments earlier in the year, and wanted to see if you could build on those. And, I guess, the three items I was looking for is just maybe any timelines or updates you can share in terms of the next iteration of a Butterfly iQ+, how you see image quality improving as you move to the next generation, and the next generation of hardware and software updates? And then lastly, on the home imaging front, just how do you see that overall being? Should investors still be thinking that the footprint could evolve to include something along the lines of [indiscernible] to ultrasound device for chronic disease management for a number of indications? Thanks for taking all the questions, appreciate it.

This is Jonathan speaking. Because we're on a chip we have more bandwidth and higher image quality than any other platform over time. Remember, ultrasound using traditional probes has been developed over the last 50 and 60 years; we're just getting started. So, each iteration of our chip significantly improves image quality, but we don't have to wait for new iterations of the chip or new form factors. Because it's a fully programmable chip, as we have advances in artificial intelligence leveraging [deep learning] (ph) and other algorithms, our image quality gets better on a monthly basis. So, you should expect our image quality to get better. Think about the first digital camera you had. Everybody looked at it and said, "Oh, it will never replace Phil." Kodak went bankrupt. Ultrasound-on-a-chip, we will get better and better. And then the next two iterations will not only equal a $250,000 cart-based system, but will exceed it. In terms of going to the home, that is still our Northstar. The stethoscope was invented over 200 years ago, as our ultrasound gets easier to use with our deep learning Artificial Intelligence, as our software gets refined, we will start supplanting the stethoscope. In terms of getting into the home, we're working now to have use cases to make regulators around the world comfortable that an individual can probe themselves and supply information to their physician that can give them better care. And with those studies, working with regulators, we were still on path to the home. I want to make clear, before we have new chips, before we have new form factors, the Butterfly iQ+ is making significant progress in image quality and significant progress towards the home. As Darius mentioned, the beauty of a chip-based solution is the ultrasound is not only on the chip, but the chip is the ultrasound. In the same way that you have a microprocessor in your computer, in your iPad and in your phone, we will put our chip based solution in other form factors, including the patch. But what's critical to understand is our path to that image quality equaling and surpassing cart-based systems. Our path to the home is not dependent on those other form factors. But those other form factors, just add opportunities.

Thanks for that, that's helpful. Appreciate it.

Our next question comes from the line of Neil Chatterji of B. Riley Securities. Your line is open. Please go ahead.

Thanks for taking the questions. Maybe a question for Heather and Darius, I understand the changes on the commercial side, but on your 2023 top line guidance, given the momentum you're seeing on the Blueprint, Blueprint fronts, with those dozen account ads, can you just talk about, how we should think about the cadence for those Blueprint wins in '23 and if that type of fourth quarter Blueprint momentum could potentially push you towards the top end of your range?

Hey, Neil, this is Heather. So, I think I'd look at it as I mean, obviously, we gave a range for a reason. And I think that if we can see the momentum, it's not just within the hospital, but outside the hospital. As we indicated, we are partnering with some folks, some distribution partners to help accelerate growth. And we've already signed at least one and we've trained them and we're ramping-up. So, we expect that momentum to pick-up through the year. And then as we have our in-hospital Blueprint, and enterprise sales or inside team is focused on the hospital systems, and the Blueprint failed, and we believe that renewed focus will allow us to accelerate throughout the year as well. So, I think it's too early to say which end of the range we would end up in, but we feel good about the momentum as we move through the year.

Got it. And then, maybe just on with the University of Hospital Bonn and the University of Maryland agreements, how should we think about those over time, is that are those more akin to the University of Rochester type of rollout as users expand over time?

I'm happy to take that.

Darius, do you want to take that?

Yes, no problem and thank you for the question, Neil, nice to hear from you. So, with the University of Bonn and with Maryland, one thing I want to point out in particular with Maryland is, the fact that we were able to implement and deploy our software in 14 days, Neil, is a really impressive feat, that same task just a year and a half ago would likely have taken us months. But given the investments we've made in our enterprise software solution, and in the infrastructure around that, to deploy that solution, we're now able to do this in record time. And I think what that speaks to is the fact that we are taking this trojan horse strategy with our enterprise software, we are demonstrating its value as a first kind of step in the direction of transforming care in these larger systems. And ultimately, the goal is to have many more Rochester like system-wide deployments, with really innovative partners, that sees the value of Butterfly and its unique ability to transform and improve care. So, that is the end goal, Neil, I think it's still obviously early days. But the progress that we're seeing is very positive and is giving us confidence that we're heading in that direction with many accounts.

Yes and I think Darius too, I think you could also say that the University of Bonn is very similar to Rochester, but in the medical school world, right. So, it's the combined deployment of devices as well as the software in a one-to-one model, and the fact that they're training their students to use the device, while their learning facilitates the use of the device and care later on.

Great, thanks for that color. Maybe there's one final question just with the CEO search, just kind of curious, kind of the ideal profile you're looking for, in that CEO to help direct the ship and enhance the commercial strategy?

This is Jonathan. Neil, I'll take this one. The most important thing about a CEO is someone that will inspire the team and inspire customers. We're looking for a CEO that has not only scaled a company, but brought a disruptive technology to market, as well as a technology that needs to change behavior in order to make the Butterfly iQ+ as ubiquitous as a stethoscope, we do have to change behavior. And while we're well on the way to changing that behavior, we're looking for a CEO that understands that. He can motivate our team, he can motivate customers, he or she can motivate investors, and has a track record of introducing and scaling disruptive technologies that require a change in behavior.

Great, thanks for those responses. Let's jump back in the queue.

Thanks, Neil.

Thank you. [Operator Instructions] So, our next question comes from the line of Suraj Kalia of Oppenheimer. Your line is now open. Please go ahead.

Good morning, everyone.

Hey, Suraj.

Hey, Heather. So, I guess one question for maybe Darius and Heather also, one your way. A lot of questions have already been asked. So, Darius, maybe a multi-part question, forgive me for this right. How should we think about new store, same-store sales, very broadly speaking, maybe if you can walk us through how many reps do you have and also about our math is suggesting about a quarter of the customers have about half subscription customers also, if you could just tie all of this together and help us understand that?

So, as we mentioned -- and thank you for that, we've restructured our commercial team, brought on new leadership and we're really focusing on the large health systems and hospitals with our core team, we believe we're going to get the most bang for our buck and the most scale and impact by actually focusing our internal team on those large health systems, while leveraging distribution that's already established scale in the more fragmented out-of-hospital markets that allows us to be more efficient from an SG&A perspective, and how we actually deploy our team, so that we can actually focus on the accounts and the systems that are going to drive scale and impact. I think we're already seeing proof that that is the right strategy. And that is the right focus. If you look at the logos we've added, if you look at the size and the scale of these health systems that our team is targeting, what tends to happen Suraj is that we'll enter through one department, we will spread our enterprise software will really be that Trojan horse, but also the probes will spread as more and more clinicians within those health systems walk into work with a Butterfly in their hands or in their pockets, it forces the conversation, people start to see and embrace what a positive impact Butterfly is having in their daily clinical workflow and routine. And the enterprise software really allows that to be deployed and utilized in a seamless and effective way. And so the strategy and the focus this year with our team, with the actual sales folks we have is to focus and prioritize on those large health systems where we can land and then subsequently expand. There's so much opportunity in the United States and in the other markets in which we're established and have a sales team that there is not a question that we have to go spread the team very thin. The real impact comes from actually focusing on the accounts we have developing that ROI within each and every one of those accounts, and expanding as we prove the value of Butterfly.

Got it. Heather, if I may. So, Heather, one of your comments caught my attention, we understand the internal constraints and the changes and all that. I think so in your prepared remarks, you also mentioned something about external resource constraints, I'd love to get some additional color on that Heather and also, maybe if you could to the extent that you can, the cash burn reduction from 18 to 10 per month. I mean, that's a drastic reduction, right. Can you give us a flavor of where exactly the cash was being spent or where it is being cut? Thank you for taking my questions.

Sure. So, starting with your first question, so well, actually, I'll start with your second question first. So, on the cash side, first of all, you have to remember cash, cash use does decrease as the year goes on the first quarter, as I mentioned, is typically higher. That being said, if you think about where we were early in the year, we were ramping-up, and we were hiring a fair number of folks, we did one cost reduction initiative in Q3, and we did a follow-on in Q1. The reductions really came across the board. And we focused our attention on specific projects. We trimmed down more of our R&D and some of our sales side, but also D&A. So, it was really an across the board reduction. Obviously, from a percentage perspective, we were spending more on the R&D side, really than anywhere else in the company. So, from a pure dollar standpoint, that's where most of the dollars came from. And that was a similar result in the Q1 reduction as well. We also were very focused on external spend. And we were reducing consultants and other things that really weren't contributing to our near-term ROI. And I think Jonathan, you wanted to -- you wanted to add to that?

Yes, what I want to make crystal clear is, this reduction is making us more focused and more efficient, whether it's in R&D, or in sales. We're stronger with a more focused team, and a team that understands every day what they have to accomplish to make our Butterfly iQ as ubiquitous as the stethoscope. Our R&D is more efficient than ever, our ability to develop deep learning algorithms and AI more efficient than ever. Our enterprise team and enterprise software is more efficient than ever. I'd like everybody to reflect Netflix maybe a decade ago when they had a reduction in stock, they ended up with higher talent density, and that's precisely what we've done. While it's difficult to let people go, we are now a stronger team, with higher talent density, more efficient team, more focused team, and more productive team. And so, while there is reduction in cost, there is an increase in productivity.

Okay, that was well-said, Jonathan. Thank you for that. And I think -- does that answer your question, Suraj?

Yes, perfect. Thank you.

Okay. And then, as far as the external factors are concerned, what we were talking about was what we were seeing in hospitals in the fourth quarter, we started to see it at the end of the third quarter and we did talk a little bit about this on our third quarter call, was that we have had a tremendously positive response to our products, but when you start to talk about enterprise-wide large scale deployments, hospitals coming out of COVID, I think you've probably heard other people talk about this, there is a fair amount of burnout with the staff. So, even when somebody is saying, "Hey, economically this makes sense, and you know, we would like to get this in place," there's been a delay of implementation in some places, because they just don't have the staff or the resources to focus on getting it deployed. Not everybody is like the University of Maryland, where we can get it done in 14 days and get it in. And so, that's what we are running into in the third and fourth quarter, and into the first quarter of this year. We do expect that dynamic to alleviate, and so, we will keep you posted.

Thank you.

Thank you. And with no additional questions rising at this time, I would like to hand the call back over to the management team for closing remarks.

Thank you for joining us on our Q4 call. We look forward to updating you on our first quarter 2023 call. Thank you very much.

Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. Have a great day ahead.